Thinking of downsizing in retirement? Here’s why selling your family home may cost you more than you expect

In fact, the decision is almost evenly split. A 2025 Royal LePage survey conducted by Leger found that 46% of Canadians approaching retirement plan to downsize within two years of leaving work, while 47% say they will not (1). A closer look at the financial mechanics of selling and moving explains why so many people hesitate.

The hidden costs of downsizing

On the surface, downsizing looks like simple math: Take the market value of your four-bedroom home, subtract the price of a two-bedroom condo and pocket the difference.

But this calculation leaves out a long list of costs that can eat into that windfall faster than you might expect.

In Canada, sellers typically pay 4% to 7% of the final sale price in closing costs — and real estate commissions are the single biggest line item (2). Across the country, commission rates range from 3% to 7% of the selling price, depending on the province and the specific agreement with your agent (3). On a $900,000 home, that alone could run between $27,000 and $63,000, before factoring in legal fees, adjustments and home preparation costs.

Then there’s the cost of actually moving. If you’re relocating to a different province — say, from Ontario to British Columbia to be closer to family — you could be looking at $7,500 to $14,000 or more just for a professional moving company to transport the contents of a 3- to 4-bedroom home (4).

And don’t overlook the mortgage picture. Many Canadians who purchased or refinanced during the pandemic locked in 5-year fixed rates at or below 2%. If you sell today and enter the market as a buyer, you’ll be looking at a new 5-year fixed rate of approximately 4.09%, or a variable rate of about 3.35% to 3.70%, as of late March 2026 (5). Even on a smaller mortgage, your monthly payment could be significantly higher than what you’re used to paying — precisely the opposite of what most people expect when they downsize.

The tax outlook is more favourable in Canada

Here’s where Canadian homeowners catch a significant break compared to their American counterparts: Canada’s principal residence exemption (PRE).

Under Canada’s Income Tax Act, if a property has served as your principal residence for every year you have owned it, the entire capital gain from the sale is exempt from tax — with no dollar cap (6). There’s no income threshold, no filing limit and no requirement to reinvest the proceeds within a set time. As long as the property was ordinarily inhabited by you, your spouse or common-law partner, or your children during the ownership period, you can sell a home that has doubled or tripled in value without owing a dollar in capital gains tax.

For context, when you sell a property that isn’t your primary residence, the CRA doesn’t tax the full profit. Only half of that capital gain — 50% — is included as taxable income for the year. That rate held firm after the federal government scrapped its proposed two-thirds increase earlier in 2025 (7). But for your primary home, the PRE means the inclusion rate is effectively zero, so you aren’t taxed on the profit.

There’s one important caveat: If you own more than one property — a cottage, a rental unit, a secondary home — only one can be designated as a principal residence in any given year. This is why strategic tax planning matters before you sell. Consult a tax professional or financial adviser to make sure you’re designating the right property as your primary.

So why aren’t more Canadians downsizing?

Even with the PRE reducing the tax burden of selling your home, downsizing isn’t always straightforward.

Financially speaking, moving makes sense when the savings are significant enough to offset the cost of selling. If you’re in an expensive market like Toronto or Vancouver and relocating to a neighbourhood with lower property taxes, condo fees and monthly expenses, recovery can happen faster than you’d expect.

Also, when your capital gain is fully sheltered by the PRE and you’re moving into a significantly cheaper market, the tax math also works in your favour — you can invest a significant lump sum to generate additional retirement income.

And outside of financial gain, proximity to family is still the most compelling reason to move. If your health is declining such that it may limit your independence, it could be in your best interest to relocate where you have support.

However, many retirees are choosing to stay put — and for good reason. Canada’s home equity has become increasingly central to retirement security, sometimes uncomfortably so. According to the 2025 Canadian Retirement Survey commissioned by the Healthcare of Ontario Pension Plan (HOOPP), 50% of working homeowners plan to use the sale of their home to fund retirement (8). Having most of your wealth tied up in a single, illiquid asset is a financial risk that many financial planners routinely caution homeowners about.

What Canadians should consider before deciding

If you are a Canadian homeowner approaching retirement and weighing a potential sale, here are practical steps to help you navigate the decision clearly: